3 Great Exception Reports for Small Business Owners

Mark Canes

Exception reports are used to alert businesses about unusual or abnormal data or information outside the norm, enabling employees to take prompt action on the information. These exception reports are typically created automatically as part of ERP reporting tools provided by the company's software program. This piece of software will look at information across various areas of the business such as inventory and sales, and generate daily reports highlighting data points not in line with the established norm.

A small business owner can benefit in multiple ways from being alerted to important exceptions via the company's inventory management and accounting ERP software. Here are 3 good examples of exception reports that can help the owner (or managers) of a wholesale / distribution business to identify issues in a timely manner, without having to wade through all the routine transaction detail. Note that this article assumes that these reports are generated and sent automatically at the requisite intervals.

1. Price and Margin Exceptions

This one's obvious: alert the owner to any sales orders entered that day for which the gross margin is below an acceptable threshold, and / or where the order entry person has overridden the system-defaulted selling price. The details on this will of course depend on your specific business and rules - for example, should the exception report be based on each individual line of an order, or just the order total? Additionally, the frequency and timeliness of this report will depend on your pick / pack / ship process and timelines - if you ship orders next day, then perhaps a nightly summary would be best.

2. Fulfillment Time Exceptions

All companies talk a good game in terms of customer service, but many fall down due to simple un-awareness. This exception report can help a customer service or logistics manager proactively head off customer dissatisfaction. If you establish "normal" or "acceptable" shipping timeframes - the elapsed time between receiving an order from a customer and shipping it out - then you can generate exception reports that alert you only when an order has failed to ship within these timeframes (which can be across the board or customer by customer).  Using this type of exception report - again, probably a daily report - you can proactively communicate with the customer to re-set expectations and keep the customer happy. And if all orders shipped in a timely fashion, you simply don't get an exceptions on the report, so you know all is good.

Exception Reporting Explained


3. Inventory Movement Exceptions

Yes, I know - you were expecting me to deal with low inventory / reorder level exceptions here. But that's too obvious (although it's also a fine example of the use of exception reports). I'm instead going to suggest two other types of inventory exception, that can be combined into a single exception report that you'd review perhaps weekly, depending on your purchasing / replenishment cycle. This report will identify and report on two types of anomalies based on sales trends over the past X weeks or months (you determine X):

  • Products for which the number of units sold per week / month has declined below the usual level (this can also be based on comparison with same weeks or months in previous year for seasonal businesses) - this is a variation on the traditional slow-moving report
  • Products for which unit sales per week are trending upwards beyond normal sales growth parameters - again adjusted for seasonality if applicable - to trigger investigation into whether we need to re-think replenishment rules (like min / max levels, etc.) for these products

A weekly report like this last one, if properly thought out, will help draw your attention to only those items that need careful analysis and thought - when that analysis is necessary. In a business that tracks and sells large numbers of SKUs, this can quite literally allow you to better manage your inventory with significantly fewer human resources.  To learn more about reports beneficial to small business owners, download our free guide.